"The figure is astonishing because everyone was expecting a negative figure and preparing for a recession," she said, pointing out that stable consumption and company investment helped to support the economy.

European blues

On the other hand, Italy has now followed Germany into recession, with official data confirming that its economy shrank by a larger-than-expected 0.5% in the June-to-September period. This follows a contraction in the previous three months of 0.4%.

Meanwhile, separate figures showed that the Spanish economy shrank in the third quarter for the first time since 1993.

In the three months to September, the eurozone's fourth-largest economy contracted by 0.2%.

Analysts believe that a recession in Spain is now unavoidable, driven by a slump in household spending and a property crisis.

"We now expect the eurozone to show a quarterly GDP fall of 0.3% or 0.4% in the third quarter," said Gilles Moec at Bank of America.

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Bush defends free-market system

The BBC's Ben Shore says the numbers make the employment and pay prospects for 320 million Europeans look grim, but it will also serve to focus minds in Washington where leaders of the G20 developed and emerging economies will begin talks over the weekend.

Economic summit

The group, representing 85% of the world's economy and two-thirds of its population, is to discuss how to contain the financial crisis and agree on longer-term reforms to reduce the risk of a repeat.

Ahead of the summit, Gordon Brown called for worldwide tax cuts and spending increases to prevent the global economy from slipping into recession.

"We need to agree on the importance of co-ordination of monetary and fiscal policy," he said.

"There is a need for urgency. By acting now, we can stimulate growth in all our economies. The cost of inaction will be far greater than the cost of any action."

US President George W Bush insisted the financial crisis was not a failure of free-market capitalism.

Speaking in New York, he said the surest way back to sustained economic growth was not to reinvent the system, but to reform it.

"The answer... is to fix the problems we face, make the reforms we need, and move forward with the free-market principles that have delivered prosperity and hope to people all across the globe," he said.

Critics say Mr Bush's words are unlikely to convince those who see the crumbling US economy as an indictment of his own policies.

On Thursday, data showed the number of US workers drawing unemployment benefits had hit a 25-year-high of 3.9 million in the week to 1 November.

Protracted slowdown

Official EU figures for the third quarter are expected to show that the eurozone has slipped into recession - defined as two quarters of negative growth - with forecasts of a 0.1% drop in GDP, following a 0.2% contraction between April and June.

Germany's fall in economic output was driven by falls in exports

On Thursday, official figures showed the German economy, one of the world's largest, had shrunk 0.5% in the third quarter, following a 0.4% drop in the second quarter.

On Wednesday, the Bank of England said the British economy was probably already there.

The Organisation for Economic Co-operation and Development (OECD) says economic activity is expected to fall 0.5% in the eurozone next year as the world's leading economies enter a protracted slowdown.

In further evidence of the deteriorating economic climate, new car sales were down 14.5% in October, the sixth month in a row of declines.

'Human crisis'

Meanwhile, Russian President Dmitry Medvedev has said his country and the EU could "speak with one voice" at the G20 summit hosted by US President George W Bush.

"Russia is ready, together with the EU and other partners, to participate in working out the parameters of a new financial architecture," he said.

If hundreds of millions of people lose their livelihoods and their hopes for the future are dashed because of a crisis they have absolutely no responsibility for, the human crisis will not remain just economic

Ban Ki-moonUN Secretary-General

The G20 meeting will bring together both leading industrial powers such as the US, Japan and Germany, and emerging market countries such as China, India and Brazil.

The heads of the World Bank and the IMF, the UN secretary-general and the chairman of the Financial Stability Forum have also been invited to attend.

The leaders are scheduled to dine at the White House on Friday evening and hold two plenary sessions on Saturday, followed by a statement by President Bush.

They hope to agree on a common set of principles for future reform, including changes to the organisations charged with regulating the world economy. Later summits will focus on working out the details of the reforms needed.

Japan's prime minister said it would lend up to $100bn to the IMF

In an open letter to the G20 published on Thursday, UN Secretary-General Ban Ki-moon urged them to prevent the economic slowdown causing a "human tragedy" among the poor, particularly in developing countries.

"If hundreds of millions of people lose their livelihoods and their hopes for the future are dashed because of a crisis they have absolutely no responsibility for, the human crisis will not remain just economic," he warned.

Mr Ban said that even though more than 170 countries would not be present in Washington, he stressed "they also face grave difficulties" and that immediate action was more vital for them than reform of global financial institutions.

Japan has announced it is prepared to lend up to $100bn to the IMF to help emerging economies hit by the financial crisis.

The loan offer is a part of a package of measures that the Japanese Prime Minister, Taro Aso, intends to present at the G20 summit.

The IMF has already provided more than $30bn of emergency loans to Iceland, Hungary and Ukraine.

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